Thursday, February 25, 2016

Several weeks ago, President Obama released his final budget proposal to
Congress. In it, the President requests $48.9 billion in gross discretionary
funding for HUD—a $1.6 billion increase over the amount that Congress
appropriated in FY 2016. With the exception of the Community Development Block
Grant (CDBG) and the public housing capital fund, HUD’s FY 2017 budget
maintains or requests increases for key programs over the levels that lawmakers
approved in FY 2016 (Figure 1).

More than three-quarters (78 percent) of the funding request
would support 4.5 million low-income households through HUD’s three largest
rental housing assistance programs: housing choice vouchers, project-based
rental assistance, and public housing (through its capital and operating funds)
(Figure 2).

After several years of uncertainty in the wake of sequestration
in 2013, the request of $20.8 billion for the housing choice voucher program
would fully fund all voucher renewals in calendar year 2016. The request
includes a 26-percent boost in administrative fees to cover public housing
agencies’ (PHAs) costs to administer the voucher program under a new formula based
on the recommendations of a HUD-commissioned
study released last year that highlighted the underfunding of PHAs.

Meanwhile, the budget would provide a full 12 months of
funding for all contracts under the project-based rental assistance program,
including public housing units and privately-owned units that were converted to
long-term project-based Section 8 contracts under the Rental Assistance
Demonstration (RAD) program. For the second straight year, HUD is seeking
$50 million to expand the RAD program and remove the 185,000 unit cap on the
number of public housing conversions under the first phase of RAD. Since it
received Congressional authorization in 2012, RAD has been a key part of HUD’s
strategy to access private capital to rehabilitate and preserve the aging public
housing inventory, which has experienced a net loss of 139,000 units since
2000. Until RAD’s authorization, HUD’s public housing program was largely
prohibited from accessing non-federal funding sources for making critical
repairs to the stock. As of December 2015, HUD estimates that PHAs and their
partners have raised over $1.7 billion through RAD to convert more than 26,000
public housing units.

With an increased emphasis on public housing RAD
conversions, the request for the public housing program in FY 2016 was a
marginal increase—less than 1 percent—over the FY 2016 enacted level. The
budget proposes a 2 percent reduction for the public housing capital fund, which
is troubling given that the public housing stock has an estimated capital needs
backlog of about $26 billion, and that adequacy issues among public housing
units are much more common than among other types of federally assisted and
unassisted units. While RAD will help address adequacy issues in the public
housing inventory, there is no guarantee that RAD funding will continue, and the
ongoing disinvestment in the public housing capital repairs fund may offset gains
made under RAD.

Funding for homelessness prevention remains a priority in
the President’s budget, which includes an 18 percent increase in discretionary
funding over the FY 2016 enacted level for Homeless Assistance Grants. The
increase will fund $25 million in new projects for homeless youth in coordination
with the Department of Health and Human Services (HHS), an additional 25,500
new units of permanent supportive housing targeted at the chronically homeless,
and 8,000 new rapid rehousing units for homeless families. Overall, in contrast
to many other HUD programs whose funding levels have declined sharply over the
past decade in real terms, funding for homeless assistance grants is now 43
percent higher in FY 2016 than in FY 2006 (Figure
3).

Note: Percent change is based on dollar values that have been adjusted for inflation using the CPI-U for All Items.Source: White House Office of Management and Budget; US Department of Housing and Urban Development FY 2017 Congressional Justifications.

Building on the findings in HUD’s recent Family Options report
highlighting the effectiveness of vouchers in improving the housing stability
of homeless families, the budget is seeking $88 million in discretionary
funding for 10,000 new vouchers for this population. In addition to this
request, the budget has also proposed $11 billion in mandatory funding for an
ambitious new 10-year initiative to end homelessness among families with
children. This initiative, which would be exempt from the annual Congressional
appropriations process, aims to assist 555,000 families over the coming decade
through a significant expansion of housing choice vouchers and rapid rehousing
assistance. As I noted in a blog
post last year, the reduction in family
homelessness has been much smaller than among veterans and chronically homeless
individuals. In fact, as of the 2015
Point-in-Time count, which estimates both the sheltered and unsheltered
homeless populations on a single night every January, the number of homeless
persons in families in shelter is actually 4 percent higher than in 2007.

Emphasis on Economic
Mobility and Fostering Inclusive Communities

With increasing evidence that neighborhood quality matters
for child development and economic prospects, including a 2015
analysis of HUD’s Moving to Opportunity demonstration program, the President’s
budget has requested a $75-million funding increase for Choice
Neighborhoods, and has proposed a new three-year $15 million Housing Choice
Voucher Mobility Counseling Demonstration program to help HUD-assisted families
move and stay in higher-opportunity neighborhoods. In a similar vein, the
budget has proposed the Upward Mobility Project, a new place-based initiative
that will allow states and localities to blend funding across four existing
block grant programs—HHS Social Services Block
Grant and Community
Services Block Grant, as well as HUD's HOME
and CDBG
programs—to implement evidence-based policies focused on poverty reduction and
neighborhood revitalization. The budget maintains HOME funding at the FY 2016
enacted level of $950 million, which is an encouraging sign for many advocates
who had rallied against FY 2016 Congressional proposals calling for severe
cutbacks to the program, an important source of gap financing for tax credit
projects and other local affordable housing initiatives. The budget also
includes a request of $300 million in mandatory funding for a Local Housing
Policy Grants program to help localities and regional coalitions fund policies and
programs that minimize barriers to housing development and expand housing
supply and affordability.

Reflecting the impact of the Supreme Court’s decision regarding
low income housing tax credit (LIHTC) allocations in Texas Department of Housing and Community
Affairs vs. Inclusive Communities Projectand HUD’s Affirmatively
Furthering Fair Housing ruling last summer, the President’s FY 2017 budget
has also proposed that Qualified Allocation Plans (QAPs) for state housing
finance agencies be required to include Affirmatively Furthering Fair Housing (AFFH)
as an explicit preference for awarding tax credits. Additionally, part of the
$69 million increase requested for the public housing operating fund in FY 2017
would go toward supporting increased PHA administrative expenses associated
with implementation of the new AFFH regulations.

Serving the
Lowest-Income Households

According to HUD’s 2015
Worst Case Housing Needs report, just 39 affordable units are available for
every 100 extremely low-income renter households (those with income no higher
than 30 percent of AMI). To incentivize developers seeking tax credits to
provide deeper affordability for the lowest-income households—those who often
cannot afford to live in LIHTC units without additional rental assistance—the President’s
budget has once again proposed an income-averaging
rule for LIHTC eligibility in which the average income for a minimum 40
percent of the units in a project does not exceed 60 percent of AMI.

The National
Housing Trust Fund would also help address the shortfall in units that are
affordable to the lowest-income households. Originally authorized in 2008 under
the Housing and Economic Recovery Act, the Housing Trust Fund is a mandatory
program funded by GSE contributions that will allocate funding to states and
state-designated entities for the development, rehabilitation, and preservation
of housing targeted at extremely low-income households. HUD predicts that it will
collect $170 million in fee assessments from Fannie Mae and Freddie Mac for the
fund in 2016, and an additional $136 million from the GSEs in 2017.

Preserving the
Affordable Rental Stock

Despite an expansion of the voucher program, the budget
included a $20 million reduction in tenant protection vouchers, which provide
critical protection to residents at risk of displacement because they live in
HUD-assisted units with expiring or terminating contracts. HUD notes that it
will need to provide partial funding to approximately 33,500 vouchers in FY
2017 because the proposed amount of $117 million is insufficient to fund them
for a full 12 months. Although HUD plans to request the full amount necessary
for these voucher renewals in 2018, there is no guarantee that HUD will receive
the funding it needs, putting families living in HUD-assisted units with
expiring affordability contracts at risk for rent increases, eviction, or
homelessness.

In addition to a requested expansion of the RAD program in
order to preserve affordable stock, the President’s budget has also proposed
that Section
202 Project Rental Assistance Contracts (PRACs), providing affordable rental
housing to adults aged 62 and over, should also be eligible for conversion. While
not part of the FY 2017 discretionary funding request, the budget has also recommended
adding the preservation of federally assisted affordable housing to the other 10
criteria that state housing finance agencies are required to include in their QAPs
for awarding LIHTC allocations.

--

What happens from here? As the Center on Budget and Policy Priorities
(CBPP) notes in a recent memo,
the House and Senate will likely begin working on their own budget resolutions earlier
than usual this year because an agreement is already in place on overall Congressional
funding limits for fiscal year 2017. However, final decisions on FY 2017
appropriations will likely occur after the November elections.

Thursday, February 18, 2016

The housing crisis and ensuing Great Recession of the late
2000s resulted in millions of homeowners losing their homes to foreclosure and
millions more losing substantial amounts of housing wealth as home prices
plummeted. These substantial financial losses have raised important questions
about the appropriateness of policies to encourage homeownership as a wealth
building strategy for low-income and minority households. To study this issue,
in 2013 the Joint Center published a paper entitled “Is Homeownership Still an
Effective Means of Building Wealth for Low-income and Minority Households? (Was
it Ever?)” as part of a 2013
symposium held to reexamine the goals of homeownership and explore lessons
learned from the housing crisis.
Since the original paper was completed, additional years of PSID data have become available that allow us to extend the original analysis through 2013, which we have now done in a new JCHS working paper.

The original paper looked specifically at the question of whether homeownership,
particularly for low-income and minority families, was an effective means of
building wealth during the most tumultuous housing market in recent memory. Studying
the 1999-2009 time period, the paper found that even during a time of excessive
risk taking in the mortgage market and extreme volatility in house prices,
large shares of owners successfully sustained homeownership and created
substantial wealth in the process; that renters who became homeowners and
sustained it through the period had some of the largest gains in wealth; and
that renters who transitioned to ownership but failed to sustain it ended the
study period with no less wealth than when they started. Yet while the results
were positive in supporting the benefits of sustained homeownership, the study only
covered the time period through 2009, which was the latest year of data available
at the time, and therefore did not capture the entirety of the housing downturn
and related fallout. Indeed, according to the CoreLogic National Home Price Index, house prices did not reach bottom until March of 2011 and much of the foreclosures
and distressed exits from homeownership resulting from the downturn occurred well
after 2009.

In this new 2016 paper, Update on Homeownership Wealth Trajectories Through the Housing Boom and Bust, with the extended timeframe through 2013 more thoroughly capturing the
extent of the housing downturn and its accompanying effects on families’ wealth
accumulation, our updated analysis upholds the bottom-line result from the
earlier paper: that homeownership was associated with significant gains in
household wealth, even when viewed across the tumultuous housing crisis period
of 1999-2013. However to sustain gains in household wealth from homeownership, we
found it is critically important to sustain homeownership itself.

Despite the continued declines in home values and continued high levels of foreclosure beyond 2009, the extended analysis found that homeownership was still associated with sizeable gains in household wealth in 1999-2013 for those who sustained homeownership through 2013, just as the original analysis found for those who owned through 2009. Among those who bought a home after 1999 but had returned to renting by 2013, the net wealth of the typical household in 2013 was back to what it was for these households in 1999, which was similar to the median net wealth of households among those who rented the entire time. As in the earlier study, households who began the study period as homeowners but ended as renters experienced the most significant declines in wealth. The key differences in the updated analysis was that the annual gains in wealth associated with owning a home declined in magnitude and the share of both Hispanic and low-income households that were able to sustain homeownership declined to 60-61 percent.

But while those who maintained homeownership experienced
meaningful gains in wealth, the relatively high shares among some groups that
failed to sustain owning does raise the question of whether homeownership is a
risk worth taking. On the other hand, the fact that renters accrued little
wealth over the same period points to the limited opportunities that low-income
households have outside of homeownership for building a nest egg. Taken
together the study’s findings of both the remarkably and persistently low wealth
levels of the typical renter and the potential for wealth accumulation when
homeownership is maintained underscore the need for policies both to support
sustained homeownership as well as to help renters find ways to build wealth
outside of homeownership.

Wednesday, February 10, 2016

Newly available data from the U.S Census Bureau confirms that the severe drop in home improvement spending that accompanied the housing market crash and Great Recession put a great many remodeling contractors out of business. Although remodeling businesses of all sizes experienced very large failure rates, smaller-scale businesses, which are most typical of the industry, were considerably more likely to fail during the downturn.

Utilizing the longitudinal nature of the Census Bureau’s Business Information Tracking Series (BITS), it is possible to calculate failure and survivorship rates of construction businesses with payrolls during the last economic downturn from 2007-2012. According to custom tabulations commissioned by the Remodeling Futures Program, fully half (51.0%) of general residential remodeling businesses in 2007 were no longer operating by 2012. New housing construction businesses suffered similar exoduses: 52.6% for single-family builders and 52.2% for multifamily builders. Specialty contractors, however, such as roofing, electrical, and plumbing and HVAC specialists experienced much lower five-year failure rates ranging from 33.1% for plumbing/HVAC specialists to 39.1% for roofing companies. These lower failure rates are not surprising since the specialty trades also include contractors that serve the non-residential construction sector, which did not suffer the same steep declines as the residential market.

Business size is a significant indicator of failure or survival. An astounding seven in ten residential remodeler establishments with $100,000 or less in business receipts in 2007 were no longer in operation by 2012 (Figure 1). The failure rate, while still high, drops sharply to one in four for the largest remodelers in 2007 with $5 million or more in receipts. Businesses surviving the industry downturn were in fact larger: 61.1% had receipts of $250,000 or more in 2007, while almost the exact same share of remodelers that did not survive (62.1%) had revenues of less than $250,000.

Interestingly, of the general remodelers that were able to remain in business during the steep industry slump, over 45% did so even as their business receipts dropped by 25% or more (Figure 2). Another 16% experienced lesser declines in revenue from 2007-2012, but declines nonetheless. Surely, the relatively larger scale of surviving remodeling companies provided important cushions for riding out the cycle. The rest of remodelers that remained in business over this period, about 40%, were able to successfully scale back, restructure, or otherwise take advantage of reduced competition to actually increase their revenues during the worst industry downturn on record. The vast majority of these remodeling contracting businesses saw receipts increase by 5% or more from 2007-2012.

These multi-year failure and survivorship rates mask the full dynamics of business openings and closings, however. In 2003, heading into the housing and home improvement boom years, about 18% of residential remodeling establishments were new businesses. In 2007, at the peak of the market, this share stood at 16%. During the trough years of this past business cycle, the share of remodeling businesses that were start-ups barely budged at 15-16% in 2008, 2009, and 2011. One-year failure rates during the same periods have ranged from a low of 12.9% in 2004 to 19.8% in 2009 and 14.4% at last measure in 2012. Indeed, in any given year and at all points in the business cycle, the remodeling industry experiences substantial churn of business entrances and exits.

It is important to note that the BITS database is of payroll businesses only and as such does not track movement from payroll to non-payroll, or self-employed, businesses, which is likely a common occurrence for many smaller contracting companies serving the remodeling industry. According to Joint Center tabulations of the 2007 Economic Census of the construction industry, nearly a quarter of general residential remodelers had less than $100,000 in receipts and the average business of this size had 0.93 payroll employees, indicating that some of these firms were without employees for at least a portion of the survey year. Another 27% of general remodelers had revenues of $100,000-$249,000 in 2007 and only 1.64 employees on average.

Certainly, some part of the calculated “failure” rates cited above is due to payroll businesses moving to self-employed status rather than actually going out of business. Indeed, the term “failure” is used only as shorthand to mean the establishment ceases to exist in the BITS database and not necessarily that the business failed to generate enough revenue to cover expenses. In addition to conversion to self-employment, other non-failure reasons for a business to cease to exist in the BITS file could include retirement of the proprietor or sale of the business to another entity.

Wednesday, February 3, 2016

Since 2005, the number of renter households aged 50 and over
has increased dramatically, jumping from 10 to nearly 15 million, and
accounting for more than half of all renter growth over the past decade, as my
colleague Dan McCue pointed out in a recent
post. This is not just a result of the large baby boom cohort passing age
50, but is also a distinct increase in the rate at which older adults are
renting. As these trends are likely to continue, it’s concerning that the
nation’s current supply of rental housing suitable to the needs and preferences
of older renters is insufficient, particularly in relation to affordability and
physical accessibility.

The baby boom cohort, now aged 50-69, is responsible for most
of the increase in older renters. In the last decade, the boomer generation fully
passed into the 50+ category, and going forward, this cohort will continue to
drive up the number of renters in their 70s and beyond (Figure 1).

However a growing older population is only part of the
story: more than half the growth in older renters stems from a decline in
homeownership and subsequent increase in the share of those 50 and over who
rent, a legacy of the foreclosure crisis and recession. As our 2014 report on housing for older adults noted, the homeownership rate for 50-64 year olds slipped
5 percentage points between 2005 and 2013—a larger drop than in the nation’s
overall homeownership rate over that period. For these owners-turned-renters, transitioning
back to homeownership can be especially difficult as retirement approaches: the
imperative to save for retirement may take precedence over saving for a
downpayment, while weak credit may make it difficult to obtain a mortgage. Though
some may make their way back to homeownership despite these challenges, it is
likely that the higher rentership rates among the boomer cohort will persist as
the group ages.

While the recession pushed many into renting, other older
homeowners are transitioning to renting as a choice. For these owners, rentals
may offer a smaller, more cost-effective option that demands less time,
physical effort, and money to maintain. As mobility limitations increase with
age, older owners also turn to renting to obtain more accessible housing, with
features like single-floor living, no-step entries into the unit, walk-in
showers, and other universal design elements. As the large baby boom population enters the 70-plus age
range in the next decade, we can expect a swell in the number of older renters
seeking accessibility features that can enhance safety in the home,
independence, and quality of life.

It remains to be seen whether baby boomers will elect to
make these moves earlier than their predecessors. With growing interest in
walkable communities, proximity to transit, and back-to-the-cities living, we
may see earlier turns to renting as a choice. But even if not, the sheer growth
in older households and the falloff in owning compared to previous generations
at the same age indicates strong growth in older renter households going
forward, even absent further declines in homeownership.

The question then is whether the nation’s supply of rental
units is suited to the needs and preferences of older renters. Like renters in
general, older renters have lower median incomes than their home-owning
counterparts. But since incomes decline in retirement, older renters also have
lower median incomes than renters in general (Figure 2). Lower incomes leave a significant share of older renters
vulnerable to housing cost burdens. Indeed, 55 percent of renters aged 65 and
over are cost burdened, spending more than 30 percent of their income on
housing, including 30 percent who spend more than half their income on housing.
Older cost-burdened renters typically spend less on food, healthcare, and transportation
– and for those in their 50s and early 60s, save less for retirement,
threatening financial security down the road.

Notes: Real Median Incomes are as of 2014 and have been adjusted for inflation using the CPI-U for all items.

Source: JCHS tabulations of US Census Bureau, 2015 Current Population Survey.

As noted below, older renters are more likely to have
disabilities than younger renters, as well as homeowners of the same age (Figure 3). Yet the supply of accessible
units is limited; less than 1 percent of US rentals include five basic
universal design features (a no-step entry, single-floor living, wide hallways
and doors, electrical controls reachable from wheelchair height, and
lever-style handles on doors and faucets). Units in newer, larger buildings are
apt to offer more, yet still, just 6 percent of units in buildings constructed
2003 and later, and 11 percent of units in larger apartment buildings with 20
or more units, offer all five of these features. And newer rentals tend to
command higher rents, leaving them out of reach to lower-income households with
disabilities.

Notes: For individuals age 15 and older, a disability is defined as a hearing, vision, cognitive, ambulatory, self-care, or independent living difficulty. White households are non-Hispanic. Includes non-group quarters population only.

Source: JCHS tabulations of US Census Bureau, 2012 American Community Survey.

Indeed, older adults seeking housing that is both affordable
and accessible face particular challenges. The current affordable stock tends
to be older and located in smaller multifamily buildings that are the least
likely of any rentals to offer accessibility features. Two-fifths of renter
households in their 50s and 60s live in apartments in small buildings with 2-9
units (Figure 4), which are among the
oldest and least accessible units in the entire rental stock. Meanwhile, over a
third live in single-family rentals whose accessibility varies widely by region,
with renters in the Northeast and Midwest at particular disadvantage for
single-floor living.

Source: JCHS tabulations of 2013 American Housing Survey, US Department of Housing and Urban Development

In addition to lower-cost and more accessible rentals, we
will likely see an increase in demand for rentals with services that enhance
older adults’ quality of life. Many older adults are not in need of assisted
living or skilled nursing care, but could benefit from services such as
transportation, laundry, or housekeeping that can support independent living
into older ages. For lower-income adults, service-enhanced housing, where
services are provided onsite, or service networks that support older renters
scattered in multiple locations, can fill a role that their higher income peers
can obtain through “village”
membership organizations or the more independent portions of continuing care
retirement communities.

With renters 50 and over now comprising a third of the
renter population – and renters 40 and over representing fully half – now is
the time to consider the suitability of the nation’s rental stock for older
renters and begin to address its shortfalls in accessibility and affordability.
There is an urgent need to create more accessible units, through new
construction or retrofit, suitable and affordable to older adults. This is
particularly true for the oldest cohort, which has both the lowest median
income of all renters and the highest rate of disability, and which will grow
in size as the baby boomer generation ages into their 70s. Meanwhile,
service-enhanced rental housing can play a critical role in extending independence
and quality of life for those lower-income renters who do not need skilled
nursing care or assisted living, but who could benefit from services that
support independent living.

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Drawing from the ongoing research and analysis of the Harvard Joint Center for Housing Studies, Housing Perspectives provides timely insight into current trends and key issues in housing. We dig deeper into the housing headlines to discuss critical issues and trends in housing, community development, global urbanism, and sustainability. Posts are written by staff of the Joint Center, drawing from their wide-ranging knowledge and experience studying housing. We hope you will follow Housing Perspectives, and we welcome your comments.

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